Good afternoon. My name is Dimitra, and I will be your conference operator today. At this time, I would like to welcome everyone to The Southern Company First Quarter 2021 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. [Operator Instructions] As a reminder, today’s conference is being recorded Thursday, April 29, 2021. I would now like to turn the conference over to Scott Gammill, Investor Relations Director. Please, go ahead, sir.

Thank you, Dimitra. Good afternoon, and welcome to Southern Company’s first quarter 2021 earnings call. Joining me today are Tom Fanning, Chairman, President and Chief Executive Officer of Southern Company; and Drew Evans, Chief Financial Officer. Let me remind you, we’ll be making forward-looking statements today in addition to providing historical information. Various important factors could cause actual results to differ materially from those indicated in the forward-looking statements, including those discussed in our Form 10-K, Form 10-Q and subsequent filings. In addition, we will present non-GAAP financial information on this call. Reconciliations to the applicable GAAP measures are included in the financial information we released this morning, as well as the slides for this conference call, which are both available on our Investor Relations website at investor.southerncompany.com. At this time, I’ll turn the call over to Tom Fanning.

Good afternoon, and thank you all for joining us. As you can see from the materials we released this morning, we reported a strong start to the year with adjusted earnings per share for the first quarter of 2021 ahead of our estimate. The economies in our service territories are starting to recover from the COVID-19 pandemic and the customer demand remains mildly lower than pre-pandemic levels during the first quarter, it exceeded our expectation. Importantly, many of the programs we implemented to keep customers connected during the pandemic have proven to be very effective. We have reliably provided energy to our customers and facilitated alternative payment arrangements for those in need. I continue to be proud of our employees and the ways we have partnered with our communities throughout this pandemic. This past February parts of our nation were contending with the effects of devastating winter weather that crippled generating units and power grids in Texas and beyond. At Southern Company, each of our businesses, including those with operations in Texas and the Southwest region performed well during this event. Our regulated electric and gas utilities did not experience any operational issues or related service disruptions. Southern Power was minimally impacted due to its highly contracted business model. Our wholesale gas services subsidiary Sequent Energy effectively served customers in need utilizing in large part, natural gas held in storage. And micro grids provided by power secure had a 98 runtime reliability producing over 2,260 megawatt hours of reliable energy for customers during the storm. The winter seasons atypical temperatures have also caused utilities across the country to evaluate their own system resilience under similar conditions. For Southern Company are vertically integrated structure and integrated resource planning process as we utilize across our Southeast electric utilities have beneficial for years…

Thanks, Tom, and good afternoon everyone. I hope you’re all safe and well. As Tom mentioned, we had a very strong start to the year. Our adjusted EPS for the first quarter of 2021 was $0.98, $0.20 higher than last year and $0.14 above our estimate. The primary drivers compared to last year was strong performance at our state-regulated utilities, despite a comparative quarter that had very limited COVID-19 impacts. The lessons we learned during COVID-19 allowed us to maintain a relatively static cost structure as we saw a withdrawal of COVID-19 impacts from their peak. We saw year-over-year benefit of $0.06 from weather due to the extremely mild first quarter we experienced in 2020. Further, retail electric revenues increased in aggregate due to strong customer growth in the Southeast and constructive state regulatory actions. When looking at an adjusted EPS as compared to our estimate for the quarter, the main drivers of the positive variance were continued expense discipline, retail sales impacts from COVID-19 that were nearly 60% better than our forecast across all customer classes and significantly lower than their peak and residential customer growth that has continued to exceed our expectation by almost 50%, we added nearly 60,000 customers last year. A detailed reconciliation of our report and adjusted quarterly results as compared to 2020 is included in today’s release and the earnings package. Looking more closely at sales in the first quarter, weather-normal retail sales were only approximately 1.5% lower than last year’s largely unaffected quarter. This decrease was driven by the continued trends of higher residential sales offset by lower commercial and industrial sales compared to normal times. While residential sales remained elevated, commercial and industrial sales continue to be depressed by about 3%. As you would expect, the commercial sub-sectors most impacted by the…

Thanks, Drew. As I noted last quarter, we achieved a 50% reduction in GHG emissions in 2020, beating our 2030 goal by a decade. Earlier this month, we filed an integrated resource plan in Mississippi that includes the retirement of Mississippi’s last coal unit in 2027. Both Alabama Power and Georgia Power will work with their respective regulators over the next year and responding to the effluent limitation guideline rules, which they will reflect in their next integrated resource plan. We will also continue to work with all stakeholders in developing these strategies. Another note, we have historically worked in partnership with municipalities and co-ops in our region. We work hard on mutual respect and constructive collaboration. As an example of the wisdom of this approach, Alabama Power recently signed a long-term agreement with Power South of valued customer in Alabama, which is expected to create energy savings and enhance system reliability from coordinated planning and operations. As a part of this agreement, Alabama Power has the right to participate in a portion of power SaaS future incremental load growth. In closing, our strong first quarter positions us well to deliver on the financial objectives for the year, with the summer months and storm season ahead, our operating companies are well prepared to support the needs of our customers. And of course, all eyes remain on progress at Vogtle and we look forward to providing continued updates as we approach fuel load and in service for Unit 3. Thank you for joining us this afternoon. Operator, we’re now ready to take questions.

Thank you. [Operator Instructions] Our first question comes from the line of Julien Dumoulin-Smith with Bank of America. Please proceed.

Julien, how are you?

Good afternoon team. Hey, good to chat. Absolutely. So if I can – if we can chat here, you pointed out several factors that contributed to the progress of the project, right. But clearly, productivity is your focus area, it seems like from your prepared comments here. Can you talk about your plans there to turn around productivity? It sounds like it’s more so Unit 4 and Unit 3, but just all together, where do we stand more specifically numerically on productivity, we’re in the effective of – and what do you think you can do to improve that specifically?

You bet. Yes. Well, look, number one, we’re basically modeling forward experience on three for four. So let’s think about it. Do you remember last year? It really started about the last six months of 2019 through the first six months of 2020. Remembering when we were staffing up, effectively that’s what we’re doing now on four. We’ve delayed that and we’ve accounted for all this and revised estimate to complete and everything else. Because we didn’t want to release all these people to four until effectively, we finished three. So what we have done is just estimated that we can hit November with experienced similar to last year. We’ll get CPI up to, I don’t know, about 165 for the remainder of the project. We’ll be completing at least 2%. Now here’s where I think we have room for improvement. Remember, the period I just told you last six months of 2019, first six months of 2020. Included in that, we’re three waves of COVID, who knows what’s going to happen with COVID. But we have some reason for optimism given that we’ve expanded vaccines. It appears that the way they’ve gotten smaller, certainly our experience right now, it is way less than it has been. And so our view is productivity should rise. And so we have some level of optimism, obviously we can guarantee it that we’ll at least meet or beat what we did on Unit 3 with Unit 4, one last thing. There are always lessons learned on Unit 3 and some of the quality measures we just talked about going into hot functional tests. We’re applying all of those lessons to Unit 4 so that we won’t have to repeat them there. In fact, our good friends from Vogtle came to our last board meeting and reiterated the notion that we should see better performance on 4 than 3. All we’re saying is right now, Julien, that even if we did just what we did on Unit 3, we can hit November. We frankly believe and expect will do better.

Got it. But we won’t see that uptick and replacing personnel until after fuel load.

I would say – so let’s go through the big risk factors going forward on three. I guess the predicate is you’ve got to have a successful HFT, right. I think the biggest risk factor, however, going forward is after HFT to fuel load, there’s two segments of work left that we still have to do and do well. One is, completing the work that really is related to nuclear fuel, right. HFT means that we’re going to use the effluent heat off the reactor coolant pumps to heat up the project. So it would be things related to nuclear fuel, like, the system’s required to remove the fuel from the fuel pool and move it over to the reactor core. It would include systems like finishing up the Radwaste facility. The second segment would relate to, what I would call broadly support systems, recall that we’re going to have about 800 permanent employees at the site. So support systems for those folks. So let’s think about HVAC communications, out of the water, things like that. That will support the people that are going to be working at the plant. And just to give you one more frame of reference, it’s taken a lot to get to HFT something like the latest work we’ve been doing, 60% of those systems are what we would call safety related. And by that you should hear complexity. The amount of work to be done in between HFT completion and fuel load is significantly less, maybe 60% of that work. And only about 10% or less of those systems are safety-related. So I will say this to you. I believe that’s the next riskiest thing we have to do, but it’s not as big a deal as it has been getting to HFT. And then the third final thing is having a successful run from fuel load in service. We feel pretty confident about that. Hey, last point, so I think, Julien, you are starting to see people move now, frankly, from Unit 3 to Unit 4. Certainly, that’ll get accelerated into the summer. Probably, it’ll start to max out around June, and then we’ll hit our numbers at Unit 4.

Okay. Got it. Excellent. Thank you so much for the details, right. Best of luck. Appreciate it.

Thank you. Appreciate you joining us.

Our next question comes from the line of Steve Fleishman with Wolfe Research. Please go ahead.

Hey Steve, how are you?

Hey, Tom and Drew. Good afternoon. So just first on the – I guess one question on Vogtle, just the quality issues that you – quality control issues you identified on the, I guess, the release during March. I assume you feel like those have been remediated and maybe just give some color on kind of what was done to make sure you’re kind of on the right track there.

You bet. So let’s back up for several calls. And I use this vernacular, but I always caution you it’s just vernacular paper. But effectively that involved assuring that there was in the evaluation of the as-built site – as-built condition of the plan as compared to the design basis of the plant. That was harmonized. And where there were differences that we made adjustments. Some of that was work that needed to be remediated. When we saw this starting to delay beyond what we thought, recall that we were calling for last two weeks in March, kind of start of HFT. We decided to really stop and take a good look at the system. It appears that while there were some issues elsewhere in the plant, the concentration of issues really dealt with the electrical systems. And then when you think about what it takes to turn over a system. Effectively, when we saw these problems start to manifest itself, we caught it ultimately with our quality control program. And so in effect, we had to – we sat back and looked at it and said, no. Our quality control program does work. We have identified the system. We have remediated them, in order to start HFT. There are some things that we did catch that will continue to be remediated from the finish of HFT to fuel load. But we’ve sketched all that out and we’re pretty confident that everything that we know we’re dealing with. All of this is a part of our current cost and schedule estimates. I would say to that and Bechtel would agree with this. We talked about this with our Board that for what we have found, we think we are making adjustments to Unit 4. So that we will not, we should not repeat these issues going forward. That gives us more confidence in schedule and cost.

Great. Different topic, just the Sequent transaction and sale, did you name who the buyer was and just can better understand. So effectively, are you freeing up $1 billion of effective balance sheet through the sale, even if there is not a direct payment. Is that how to think about it.

Steve, it is – we have not announced the buyer because it’s something that they will likely announce on their earnings call that will come in future days. It is somebody very credible and respected in this space. And so we just think we’ve found a better owner for sequent than ourselves. We probably tie up something on average, like $200 million worth of working capital. So we have to provision for that within our credit facilities. And then because of the gross revenue or gross sales associated with that business in four positions, probably something like another $800 million worth of parental support. And so these things will be freed up after some transition, we don’t expect the transaction to close until the beginning of the third quarter, but we’ll alert you as things progress. I always want to say value is a function of risk and return. And when you look at it, we’ve never included any earnings from Sequent in our return. We’ve always asked them out as extraordinary items. They’re just too variable and it’s fascinating. I just have some quick data to show how variable we are. If you look at Sequent, even prior to when Southern made the acquisition, say from 2010 forward. They’ve averaged about $40 million in net income. They had two years, one was $260 million, and one was $163 million where they really blew out earnings. Other than that, the earnings were near zero. If you exclude those big years, so over nine years, they averaged about $4 million of net income. And since we’ve owned sequence, there’s been one big year, the 163 in 2019, and then this year. And then otherwise the earnings were around $23 million in net income. And so if you step back and look…

Okay. And then last question is just on the renewables acquisitions and the wind. I’m just curious kind of what returns are you seeing there? Because I recall there was a period of time, where you had been saying that returns didn’t really look good for these transactions and then you’ve been ramping them up more recently. So I assume maybe that you started to see them improve again. Could you just give some color on that?

Yes. We think it’s really a tough business. We continue to believe that. And Steve, I’ve talked about that in the dimensions of the duration of the contracts, the terms and conditions of the contracts. And so it’s just been harder. There’s a lot of deals out there. I would say that our share of new deals has just been lower than historical, because there’s too much money chasing too many deals. We keep the same thresholds in place. And rather than comment on any specific deal. In general, what we look for is significant contract coverage. So in this case, 90% over 10 years, we look for those things and we generally get profits that are, say, ROE is plus 150 over our regulated business. That would be our general threshold rather than commenting on particular deals. But these deals that we just mentioned that drew just mentioned fit that profile.

Great. Great. Thank you.

You bet.

All right. Next question comes from the line of Michael Weinstein with Credit Suisse. Please go ahead.

Hey Michael. How are you?

All right. Doing good. Hopefully, you’re doing good too. Hey, just to follow up on that last discussion. Could you comment on your commitment to a business like power secure, also providing services out there? Is that – how is that different than sequence? What ways are you seeing more value there? Oh

It’s completely different. So we’ve talked in fact about a Venn diagram in the past, the three circles of a Venn diagram in this case would have been Southern Power, PowerSecure and Sequent. Now let’s think about that for a minute. Sequent, now let’s start with PowerSecure. PowerSecure has really been focused on kind of mostly the retail side of the business, particularly commercial and industrial customers, where resilient is particularly important. And in keeping with this 100 year old model of central station, make move and sell, projects at scale. PowerSecure essentially represents the idea of miniaturizing that century old business model and putting the make move and sell premise at the customer premises. So when you think about some of our major customers who do value resilience at an exceptional level, we can put a micro grid. We are by far the largest share of micro grids in the United States through PowerSecure. We can put distributed generation there. We can put proprietary switch gear and storage. And so this has been a wonderful kind of window on the world. Add to the Venn diagram what we’ve seen lately at Southern Power. Southern power grew up selling to other utilities or other co-ops or other munis and lately a great kind of a target zone for Southern Power has been companies, desiring green attributes. So general mills, general motors, carnival cruise lines, people like that that want to have renewables as part of their generation portfolio so to speak. The union of what we’re seeing at Southern Power in respect of that business, that market with the market that is served primarily by PowerSecure, there’s great overlap and great mutual synergy. Now we used to have Sequent as part of that Venn diagram, where we would in fact…

I just add, you describe it as window on the world, it’s sort of antenna into what the needs of the customer basis. It really looks like people are focused on an extra nine of reliability, but the assets can be used either to meet that reliability or it can be dispatched. I think our best example most recently is that we’ll do constructions at the Atlanta Airport to produce the kind of reliability that’s required there. But in terms of distributed generation, I think it demonstrates that folks are not really all that interested in prime power, but more interested in the kinds of backup and assurity that you can get out of the PowerSecure product line.

And the phrase I would use is distributed infrastructure, which includes beyond generation micro grid storage, it’s switch gear, et cetera. I think it’s a small thing, but it really helps us.

Right. More of a future look or keeping your finger on the pulse of where the technology is going.

That’s right.

Hey, along those lines, one more question on this subject and that’s battery storage. You have in the deck a couple of big battery storage projects standalone, I believe, is that something that you see more standalone battery projects like that getting built maybe as much as we’re currently seeing in our renewable projects. Is that an up and comer? Is that something with higher returns than wind and solar, something that may be replaced?

I don’t know about – it’ll be interesting to see whether the returns are higher. I think it’s an absolute requirement. We’ll build a couple hundred megawatts of battery, if you include what’s in the Tranquillity and Garland packages, but also what we’ll be doing within the state of Georgia. We’re building the two facilities we named as part of – as compliments to our existing solar facilities in California. But storage itself is probably the single biggest complication with the transition to renewables over the next couple of decades, whether it is going to be lithium-ion, which is relatively short duration if you think about how our system operates today or something more complex like compressed air energy or liquid air, liquid metal, pump hydro is probably another great example. We’re going to have to find ways for long duration storage to compliment the kinds of assets that we’re talking about on the renewable side. And one of the nice arrangements that we have within Alabama Power with a PowerSource is that they actually operate today a case facility that can deliver battery power for 26 hours. It’s been operating for almost 20 years. These are great experiments and understandings things for us to learn. I do think that battery will be an increasing area of investment for us. We just have to figure out what technology is most pertinent for the circumstances.

And I’ll just add, gosh, I think somebody is going to probably ask this later, so I’ll just do it now. But when we think about CapEx going forward, we think about transitioning the fleet going forward, it’s very clear to us that storage in some point, whether it’s short duration, intermediate, seasonal, that’s going to become important to support the intermittent profile of renewables. Gosh, I think to achieve net zero for us, we’re going to need about a 50% penetration, mostly of solar. And so on that cold winter peak day, you’re going to need a whole lot more megawatts to be able to meet those needs some storage, some CTs, some CTs with CCS, you name it. So hydrogen is important in that regard. So these are important projects too. That’s helping us understand better how to meet the aspirations of this administration. And just little more land out there, so we’re – supporters of the bipartisan policy center and I’m a member of the net zero business alliance, we’ve had a session already with some other CEOs from Tyson Foods, Occidental Petroleum, United Airlines, Weyerhaeuser and ConocoPhillips. We’re meeting again Tuesday with Gina McCarthy. And so part of our whole premise here is engaging constructively with the administration, with the concept of, yes, I am. That is we’re going to need the support, we’re going to need the administration in the boat with us to achieve that aspiration, assuming we have a supply chain availability. So we have labor available. The big issue for us to hit these kinds of numbers is that over the next 15 years, we will triple the amount of generation we will put on the ground as compared to any other 15-year period in our corporate history. It is a big lift. Assuming we get the support, can we do it? Yes, I think so. There are lots of policy choices along the way that make this a very complex decision.

Okay. Thanks a lot guys.

Thank you.

Our next question comes from the line of Angie Storozynski with Seaport Global. Please go ahead.

Hey, Angie, great to have you with us.

Thank you. So I’m just wondering, I look I never heard about Sequent before, I’m going to be honest. I’ve never heard about pivotal either. So do you guys have any other like businesses we’ve never heard of that can either bring a lot of money or the purchase – or the sale price or like release some balance sheet capacity?

Not really. We’re working very hard to clean those things up. I mean, we do have cats and dogs around the place, but Southern investments, right.

Southern Holdings, I think we’ve divested of a number of assets over the last couple of years, but this is – Angie, I think our focus is just reduce business complexity focus investment on the things that we think we’re rewarded around. And this is just sort of evidence of it. Are there large pockets of these things? Not a lot. But equally, probably is a little bit less.

The less stuff that we’ve talked about in the past had been legacy stuff from mirror going way back there. We had – they had a leasing business. They didn’t have the tax appetite. So that came over with us. We’ve been dealing with that. Choctaw has been a part of that, we talked about that in the past.

Sold all the gas-fired assets outside of our general service territory, but really just trying to focus on our core infrastructure best.

But the 200 million, you mentioned that the business made in the first quarter that stays with you guys, right. So I understand that adjustments, okay, cool. And then on…

Angie, wait a minute, 200 million, we put 75 of that in a charitable foundation to help communities. So it kind of net it out at 133 or so, but that was a decision we made.

Okay. And then on Vogtle, and I’m sorry for simplifying it this way, but I always thought about how to functional testing as the end of the construction stage of Vogtle 3. Now the past posts have functional seems to include a lot of construction and things. So is it that you guys have delayed a portion of that construction that it was still needed to be done before the fuel load, in order to – in a sense start of hot functional? You know what I’m saying is just, again, it feels to me that there’s still more construction to come, even though I saw hot functional the thought of it is the end of the construction cycle.

Yes. We adjust the construction schedule all the time to optimize cost and schedule. We try to do that. Heck, we do it every week, to be honest with you. In 2020, we did, this goes back to 2020. We did make an adjustment to push some of the nuclear related construction. Like I mentioned, Radwaste facility, like I mentioned, the equipment necessary to move the fuel from the storage pool over to the reactor. That was moved past HFT. The systems related to support the personnel beside had kind of always been there, I think. That was the last move, but that was kind of a year ago. And, and like I say, for the amount of construction left only, I don’t know, it’s 10% or less, we got into an argument about what’s complex and safety related, but it’s a smallish amount of that work that is in that vein left to do. So it was nothing that was tactically decided in my view to do anything with HFT. This is a decision we made back mostly in 2020, except that we make adjustments every week.

Okay. And so just one follow-up. So is it fair to say that what’s left to be done and granted that is probably somewhat depends on what the hot functional testing and covers. But is it fair to say at this point, you think what’s left to began on the construction side is something pretty straightforward. And so it shouldn’t be prone to delays that we’ve seen in the past.

Yes. I wish, I mean, Angie, you’ve lived with us for a number of years here. I mean, there’s nothing that the EV every day I’ve described out there as a dog fight, but it certainly is less complex than what we’ve been doing to get to HFT.

Okay. Thank you.

Thank you.

Our next question comes from the line of Jeremy Tonet with JPMorgan. Please go ahead.

Hi, Jeremy.

This is Ryan on for Jeremy.

Hey, Ryan.

Just wanted to start kind of some of what you’re hearing at the federal level out of kind of the infrastructure plan. Maybe just regarding nuclear and kind of general federal support you’re seeing at the moment just a nuclear generation in general.

So this is an excellent question. Here’s my view. And let me speak broadly. The administration, if they’re going to hit their aspiration of 80% removal by 2030 and 100% net zero by 2035, and then move the whole economy to net zero by 2050. This is an important and awfully complex and difficult undertaking. And we are ready to support them however we can. And this is part of the conversations we’ve been having on an ongoing basis with this administration. As I mentioned, we’ve talked with Gina McCarthy before on a different level, I’ll be talking with her again next Tuesday. I think the administration gets it, that there needs to be a whole different level of public, private cooperation and collaboration, carrots and sticks, in order to get this done, I will say, talk in the book of nuclear that it’s important for the United States to keep nuclear as a priority. And so anything they can do to help to keep the nuclear assets alive really helps the United States broadly with their long-term goal. And that not only includes, projects like ours, current nuclear assets in operation that are at risk because of an imperfect market design, but also providing R&D support for the so-called Gen 4 reactors that may appear in the 2030 timeframe. All of this is an important part to achieving net zero for the economy by 2050.

And then maybe just one more coming out of the federal level just high level thoughts, I mean we’ve seen I think some companies the early stages talking about kind of carbon sequestration, some focus on maybe improving some of the tax credits on that side. I don’t know if there’s anything that’s on your radar or kind of how far away you see that technology at this point.

Let me just say this. I think the wide build that’s kind of floating around right now is pretty supportive to kind of a long-term objective. So I would take a look at that piece of proposed legislation and see what it has. That’s a pretty good start. There could be lots of other things. It’s interesting. I did some media this morning and people were asking me kind of specific ideas. At this point there is more ideas than there are solutions, but we’re going to need to work together carrots and sticks. And you know what, at the end of the day, the objective function is not just carbon. For the American economy, it goes back to my work at the fed. It is so important to the fabric of our economic health as a nation. We got to get this right and then getting it right. We’ve got to balance the notions of clean, safe, reliable, and affordable. So all of these must work in balance to achieve a good result for this nation.

I appreciate it. Thanks for taking my questions.

You bet. Thank you.

Our next question comes from the line of Andrew Weisel with Scotia Capital. Please go ahead.

Thanks for joining us.

Hey, thanks for having me. I’ve got a quick one on the balance sheet. It looks like you’ve dropped the expected debt financing plan for the next few years by over $2 billion. I imagine a bulk of that is the billion dollars of freed up working capital and pairing credit support related to Sequent. Does that also include cash proceeds from the sale and are there noteworthy factors there?

Wait a minute. I’m going to turn this over to Drew. The broad conclusion of your question is no. None of this has anything to do with Sequent at this point.

Andrew, I’d just say, the reason it dropped is because we did the long-term debt issuance of $2 billion. Sequent really only changes what we would provision for short-term working capital, so that would come out of bank revolvers and the like. But I would say if you aggregate what we actually issued in the first half, you’d come up with a number that’s almost exactly the same as what we had projected when we met with you last, but we can – we’re happy to walk you through the table, I think it’s Page 19 or something like that in the earnings packet.

Okay. My mistake, I think I just misread that table then. Sorry about that. But the $2 billion from Sequent would be incremental or no.

No. So we will – the sale will occur at or around book value plus or minus that’s a relatively small number, won’t have major implications for cash generation. We’ll then be able to reduce revolvers, because we’re getting a return of working capital. These numbers are an order of magnitude smaller than what you’re looking at on Slide 19. The other $800 million generally takes the form of parent guarantees or assurances for the underlying transactions that Sequent has entered into. Those aren’t the nominated on the balance sheet. They’re sort of off balance sheet assurances from parents. And so we’ll leave at that, yes.

Okay, understood. Thanks for explaining that. Then just one quick one on COVID, are you able to provide some numbers around active cases of COVID and absenteeism on the construction site? Tom, I think you said they’re trending lower, but are you able to quantify that and without getting into sensitive information, do you have any sense of vaccination rates among workers on the site?

I don’t on vaccination rates. I know they’re up. I saw a report recently that another 500 got vaccinated. I do know that. I can’t tell you what percent of the workforce is vaccinated that may violate HIPAA rules and all sorts of things. But right now, I mean I’ll just tell you the current report card only 20 people are tested positive for COVID on the site. At other times, we’ve had hundreds in that vein. The total positives since the project has begun at 25,000, we’ve had nearly 10,000 people tested. We only have 75 people in isolation right now. And that number, I think in one reporting period has been 500.

Yes.

So it’s way down, but you know that ebbs and flows and – yes, it is great to hear. I just don’t know what’s going to happen with these new variants and everything else. We are hopeful that the worst is behind us.

Agreed, fingers crossed. All right. Thank you.

Yes.

Our next question comes from the line of Michael Lapides with Goldman Sachs. Please go ahead.

Hey guys, thank you for taking…

Hey Michael, how about those yellow jackets, man?

You know what [indiscernible] super nice guy.

Yes, yes.

Easy question for you. It’s been a while, but you all had previously I think disclosed what your potential coal ash remediation liabilities were. I think it’s been a couple of years. Can you talk about what that number is in dollar billions and the timeline you think you have to meet those requirements for the planes that are still operating. And to be honest, how material is – are the coal ash and CCR regs to not just your coal fleet, but the entire regions coal fleet.

I’ll turn this over to Drew. It’s $10 billion over 10 years.

Yes. And Michael, I think you can probably find all of that. We do a pretty decent detail of it in the 10-K every year. And so you can take a look at how that, that has modulated. As Tom said, it’s about $10 billion over 10 years. If I think about what’s in our five-year plan, probably 30%, maybe at most 40% of it is contained within that five-year period and then the balance hangs out over the end of that.

But for operating – I’m just trying to get my arms around, how important of a factor this is in the retire, not retire decision for existing plant – for operating plants.

It’s not important at all. I don’t think, I made it, I came out one annual meeting and said we were going to get – we’re going to retire all our ash columns. And we did that before there was any legislation and all that other stuff. We were really ahead of the game there. I really think the more important issues going forward are things like the effluent limitation guideline. It’s going to be a big deal. What is that? We’ve got to declare by around October. So for sure, we are working with our regulators and the staff to get our arms around that issue, because you kind of have to make a declaration. And then as we said, I think in the script that those conclusions would be a central part of our filings in Alabama and in Georgia with respect to the integration – integrated resource plan.

The only thing I’d also point you to maybe is that we will have to make filings against the ELG requirements that’s effluent limitation guidelines in October, that will require us to specify for each facility that we operate, whether we intend to make investment, to continue its operation, whether we expect to close that facility or whether we will make some investment to put that facility into a condition that will allow it to operate something like 10% of the year. But I would say that coal, we are not producing generally wet ash and is not part of our investment or closing decisions on those facilities. Almost everything is based on economics and then the other constraint that we might face perhaps at the federal level.

Hey, and I’m going to reach back to other earnings calls, when I remember I raised myself skepticism about our CapEx that we show. I still think it’s thin. And we talked about transmission as a component of it’s been this. I believe that as you take all these issues going forward, when you start retiring coal plants, the generation has to come from somewhere. And when you think about renewables being so important, we need to think about reevaluating our long-term transmission plan in order to hit those kinds of objectives. And it may be that retired coal plants could be prime areas to locate some of those resources and built by our host company. But look this is going to evolve over the next, I don’t know, 10 months to 12 months. We’ll have a lot more information for you later. I do think the Mississippi signal is pretty important.

Got it. Thank you, Tom. Thank you, Drew.

Thank you.

Our next question comes from the line of Durgesh Chopra with Evercore ISI. Please go ahead.

Durgesh, great to have you with us.

Hey, good afternoon, Tom. Thanks for taking my question.

You bet.

Maybe I’ll start with Drew and then my Vogtle question for you, come back to you. Just Drew, on the quarter, the weather was looks like a bad guy versus normal. I’m trying to reconcile to the $0.98 to the $0.84 guy. Is that predominantly just better COVID trends?

It is. So if you think about what we experienced, we were expecting kind of a sideways COVID relative to what we experienced in fourth quarter and what we actually saw was something that was really just about a 1.5% reduction in total retail sales. If you think about where we were for the year, last year, we were down in aggregate kind of 3% on average in almost 7.5% on peak. And we’re just projecting forward as we think about second quarter assuming that we don’t really see much improvement from where we are today. So a little bit of sideways until we get a better understanding of what’s coming down the pike in terms of COVID.

And Drew, our COVID estimates were of the vintage of last October, somewhere around there.

Sure, for budgeting purposes.

And I think it stands we could reevaluate what the effect may be going forward.

Got it. Okay. I mean I guess this is just the first quarter and you sort of the balance three quarters to go. So you’ll reevaluate guidance as we move along, but clearly you had a very strong start and look like on COVID terms, which early better than expectations.

That’s right. We always evaluate our guidance in October after we’ve gotten through the summer season. If you think about the major factors that influence outcome there – weather is always a dominant one, that’s difficult to predict COVID for sure is difficult to predict. We want to make sure that we’re making the proper investments and making the right expenditures in each of our states. And so we’ve got a provision for that in the second quarter. And then just know that in terms of total earnings, we would be disappointed if we’re not towards the top end of the range this year, but certainly we have limitations as it relates to earned ROEs and commitments back to customers. And so those adjustments typically hit in the fourth quarter that tend to modulate earnings into a much tighter range with the primary goal being very little variability in what we report relative to expectations.

With respect to those modulating effects, those are the above the top of the range.

Above the top, right.

Understood. Very helpful guys. Maybe just Tom, on the – for the next six to eight weeks, as you are sort of doing this Hot Functional Testing, can you just maybe elaborate on the specific risks and what remediation actions could you take in responding to those risks?

You mean within the test?

Yes.

Okay, sure. So we’re off to a good start with a test, although it is so early. But for whatever it is, three or four days of getting started here, it’s gone well. Recall the 45-day test is essentially, 30 days of ramping up pressure and temperature, and then 15 days of ramping down pressure and temperature. Don’t get excited if we’re different than 45 days. We actually did some work in advance of declaring in service, but I would assume that you’re going to be 45 days, if it’s 50 days, it’s no big deal. Okay. But that’s kind of the plan 45 days. Then we open the hood up just like you bought a car and drove it for a month. Now you’re going to look at it and see, did everything work like it was posted. So there are stages along the way as you think about, I don’t have it with me right here, but there is a detailed path of different checkpoints along the way. I think in fact, it’s eminent. We’re going to raise temperature to 175 degrees. I mean that might happen tonight. It might happen Friday. I mean but that’s the first level. And then every incremental rise they start checking system. I think the real thing I’m looking for that goes to risk is really the integration of everything like for example. We have tested all of our RCPs, reactor coolant pumps. We’ve tested them briefly all four of them running together. Now we’re going to run together for some period of time. Do all of the support systems work. So not only do we have primary power in the integration of the plant, we have external backup sources that have to work. So this is the final cruise, if you will, before fuel load that make sure that the integration of all of the pieces we’ve checked so far do work. The culmination of all this is we’re going to raise temperatures up to about 560 degrees and we will create steam and we will send it to the turbine and we will spin the turbine. Okay. So this is kind of big stuff. The only thing that will remain then finish the construction on some of the support systems and then load fuel.

Very helpful. Thank you, Tom. Appreciate the time.

You bet. You bet. Thank you. Thanks for joining us.

Our next question comes from the line of Paul Fremont with Mizuho. Please go ahead.

Hey Paul, how are you?

Doing great, Tom. Thanks a lot. And congratulations on this startup hot functional. I want to start off with maybe a follow-up to Angie’s question. You talked about a change of schedule, I think June of last year, I think you added 500,000 construction hours. Can you just tell us in layman’s terms roughly how many days or weeks that 500,000 hours represents?

So that kind of – that’s an interesting question, because I guess if you’re talking about the history of Unit 3, it feels like maybe two months, but obviously you got to think about when you’re spending that. When I say two months, I’m looking over the whole period. There are some months where there was a boatload of hours. And right now, for example, construction is just about done. I think going back to Angie’s question. I mean there’s a tiny bit of what I would call construction left following a HFT, and it’s for the support systems and a little bit associated with nuclear fuel. So it depends kind of where you are, but these all fit into – I would think of them distributed over the whole curve of construction. So hard to say my best guess is two months, well, we’ll see.

Okay. And then there’s obviously remediation work that is now going to be added to that. So instead of 500,000 hours, what would the total amount of construction hours look like including all of the remediation that you need to do after Hot Functional Testing?

So is the question how many hours remain after hot functional test, a fuel load?

Correct?

Is that your question?

Construction. Yes, construction hours.

Maybe 200,000, something like that. We’ll finish most of that in June, yes, about that.

The 5,000 hours that were budgeted last year is no longer the case that it’s not 500,000 hours anymore.

It’s already been accounted for, the way I would say it. All of that, you may remember at one time Paul, we were talking about, gosh, I mean I can remember back when we reset the schedule, we thought we might get fuel load by the end of the year. And then the latest update we gave you all before the 8-K as we thought HFT would begin at the end of March, the last two weeks in March. And then when we saw that we had to remediate some of these issues, we pushed into April that gave rise to the 8-K. And now we’ve given you a new schedule, new costs, that account for HFT as of April 25. We say that according to the schedule with 20 days of margin, but according to the schedule that would give you a very late December and service. Remember if it was March, it was November. If it’s April, it must be December. And April 25 gives you late December. And as we said, if there’s any more delays, it could push you into the first quarter. But I’m – I hope I’m answering your right question, because the 500,000 hours has already been incorporated into schedule. It’s been incorporated into costs. It’s already accounted for with 200,000 hours left between kind of now and beginning of fuel load. I hope I’m hitting the right answer. I hope I’m hitting what you’re asking.

Okay. And then it looks like you have – you’ve got about 53 turnovers remaining out of 159. Is that a fair characterization? And then it also looks like you’ve averaged about 10.5 turnovers per month from October through April. Is that fair?

I wouldn’t use that logic. Turnovers are all determined by wind systems clear to major tests. So we have about 50 left. I wouldn’t think about them as, oh, well, you do x per month that they really are determined by here, the presence of HFT. We had to pass a lot of systems to get the HFT. We have 50 more to go, less than 10% of those are what I would call safety related. The rest are support, et cetera, as I’ve described. So don’t think about it on per month. Think about it on time to systems and what remains. And we feel that we can do this before fuel load. I mean we’ve given you the schedule. If you try to, I’m afraid, I’m afraid from your question. If you’re trying to say, oh, well, you’ve done 4.5 per month and you got 50 left that says another 10 months. That’s not the right logic. If that was your question, it’s not ratable analysis.

Okay, fair enough. So basically I think what you’re saying is you’ve got an estimated 200,000 construction hours from the time you come out of Hot Functional Testing until fuel load. Is that reasonable in terms of…

Yes.

Of a conclusion, okay.

Paul, we’d think about this is that – we expected a certain reduction in intensity between hot functional test and fuel load and we’ll just have to maintain intensity for a little bit longer to make sure we meet fuel load on a timely basis.

Hey Paul, one more piece of logic. We get these reports all the time in our big meetings. Remember I’ve described these meetings where our process are effectively, completely transparent. In other words, system independent monitors in there, represents in the Georgia Public Service Commission staff, co-owners, NRC, DOE, everybody’s in there. Okay. We do an evaluation. There’s this gigantic long chart that maps out all of the systems that need to be complete over time. One of the things I probably haven’t said it clearly to you as I will now. When you think about the remaining systems between say, hot functional and fuel load, every one of those remaining 50 systems are over 90% complete. So it’s not like we’re starting from ground zero. So you’re really finishing up, what is effectively almost complete construction. Maybe that’s helpful.

Yes, actually it is. And then my last question is, I guess when you did a root cause analysis on the need for remediation, you concluded that a motivation to credit construction hours as earned drove supervisors to turnover work to Southern Nuclear for testing without first correcting deficiencies in the work. Is it possible that the level of earned hours then would also have been inflated by the fact that they were turning over work before it was actually adequately tact?

Yes, that may have been true. I mean it’s possible. But that’s all a little bit of bayoneting the dead. In other words, we are where we are right now. And I think that probably did cause the recognition of what was effectively complete as opposed to work that remained that needed to be remediated was not as clear as it could have been. So what we’re giving you right now is a completely transparent view as to where we are and what needs to be done in order to complete. I think that analysis was kind of backward looking.

Can you maybe the last question, I think – I’m sorry. Go ahead.

No, the only thing I would just say they should reappear in Unit 4, because we’ve taken into account those issues.

And then I think on this third quarter call, you were talked about 45 days, I think for a hot functional and then another 55 days between the end of hot functional and fuel load. Is that still the schedule that that we should be thinking about?

Yes, we’ve added about, I don’t know, nearly two weeks internet schedule. You remember Paul from prior calls, we had gosh, I want to say a little over a month in a startup from fuel load to in-service. And we took – we said this some time ago, we took about two weeks and added it into the Hot Functional Test to fuel load. So you should think now that total period is kind of, well, I don’t know, 70 days. Okay. We just added contingency in there. We added more margin. And we did that at the same time to, I think this was Angie, we did that at the same time that we push some work that was around 2020, I want to say somewhere around there where we push some work beyond HFT and a fuel load and also some last quarter.

Okay, great. Thank you very much.

Hey, and thank you for raising all these questions. They’re all very important. So Paul, we sure appreciate your clarification here.

Our next question comes from the line of Andrew Levi with HITE Hedge. Please go ahead.

Andrew, how you’re doing?

I’m all right. Hey, could do this to everybody 2.5 hours…

Which mean this stuff is right.

My brain hurts from the last one, from all the questions, but this is of Nuclear. So I just kind of have a thought about you guys and about where the industry is going. And Tom, you and I go way back as far as the industry and back in the 1990s, when deregulation was starting, it was caused by very, very high electric rates. And there was something called the Super Southeast and those stocks traded at a premium. And then you’ve got companies like Kentucky Utilities and other companies with lower rates that traded at a premium. So fast forward to now, and fast forward to what the Biden administration is proposing and where the industry is headed. Now you have very high rates in the Northeast, mainly TND companies that really don’t have any levers to reduce their rates or to keep rates flat. So then I look at like Southern Company again, we got to get through this nuclear plant build. But once that is done, can you maybe talk about and you have at a very high level, but the opportunity to transform your key and obviously you’ve talked about that, but maybe the cost savings around that and the opportunity there and what will happen to your electric rates longer-term relative to other parts of the country. And also basically, what that will do longer-term again, I’m thinking the longer-term for your growth opportunities.

Yes. Andy, it’s a very interesting question, but here’s the thing. I think the wisdom of the integrated regulated model will bear fruit significantly as we consider some of these issues. In the so-called organized markets, there is very little control as to constructing an optimal portfolio, number one. Number two, when you think about the portfolio, we should consider that it includes transmission. Number three, I think the fact that part of the secret sauce here is reconfiguring the portfolio, absent coal, coal carries with it a whole lot of O&M. And so not only is there optionality in terms of the generation and transmission, we will provide. I think by our planning processes, we can do that in a way that’s much more orderly and effective and efficient, then the organized market. And then finally, when you consider the O&M, that could be freed up by closing down some of these O&M intensive facilities like coal plants. We have the ability to use that O&M to keep rates lower then you’ll find elsewhere in the country. Certainly, even compared to those companies that are just wires only. Their ability to deliver the kind of price, shock absorbers, doesn’t exist, because they will be takers of costs from the market. So I can assure you that we’ve already been talking about these issues with our regulators, with our stockholders. I mean our stakeholders and I can think that we – as my earnings call, but I think we’re better positioned in this kind of model in this region then elsewhere in the United States.

Great. Thank you very much.

You bet. Thank you.

And that will conclude today’s question-and-answer session. Sir, are there any closing remarks?

Yes. I just want to maybe end with Andy’s comment there. This is a very exciting time for us all. We’re making great progress on Vogtle. I think we resolve the delays and we think we have a clearer path. Every month that goes by, we reduce remaining risk in the project. And so I think we continue to progress this thing. And boy, I can tell you the site for all the work they’re putting in is really starting to see the dividends of all their efforts. And so I can tell you, we can see the light at the end of the tunnel, and we are imbued with enthusiasm. When I think about the days ahead, in terms of transitioning the fleet Southern Company is committed to constructive collaboration, not just cooperation, collaboration with the United States government to achieve their aspirations. And so we will work together. I love our cards in this regard. I know a lot of people give you a lot of rhetoric about where they say they are and what they have done. I would rather have our cards and almost anybody else’s going forward as we address the future. Thanks everybody for your attendance today. I know it went a little long, but I always enjoy interactions. And I know I always get a lot out of the questions you ask. Thanks again. Have a great next quarter and we’ll see you again in July.

Thank you, sir. Ladies and gentlemen, this concludes The Southern Company first quarter 2021 earnings call. You may now disconnect.